Time Warner Cable says CEO Glenn Britt will retire at the end of the year and be replaced by President and COO Robert Marcus. / Time Warner Cable

by Roger Yu and Alistair Barr, USA TODAY

by Roger Yu and Alistair Barr, USA TODAY

Shares of Time Warner Cable shot up nearly 10% Friday following reports that a bidding war for the second largest U.S. cable company may be brewing.

TWC has reached out to Comcast for a possible merger as the companies' key shareholders have pointed out their compatibility and the regulatory changes that could enable such a deal, according to a source who's familiar with the matter but didn't want to publicly discuss preliminary talks.

CNBC reported Friday morning that Comcast has sought advice on whether its acquisition of TWC would spark concern by antitrust regulators and the Federal Communications Commission. The source familiar with the Comcast-TWC talks says Comcast has governmental affairs staffers in Washington, D.C. but has not sought outside counsel.

Meanwhile, Charter Communications, a Stamford, Conn.-based competitor, is also close to finalizing a deal with banks to raise enough money to make a run at TWC, the Wall Street Journal reported Thursday, citing people familiar with the situation.

Bloomberg News reported Friday that Comcast and Charter may jointly bid for TWC.

That TWC may be acquired by or merge with a competitor has been rumored for months. With pay-TV providers struggling to hold on to subscribers, analysts have suggested that an industry consolidation may be needed to shake out weaker players, generate savings and gain greater bargaining powers over content suppliers. And recent reports suggest that the pace of deal talks is accelerating.

John Malone, a cable industry legend and chairman of Liberty Media, has been advocating an industry consolidation. With Liberty Media's large stake in Charter, Malone's desire to facilitate a deal for Charter to buy TWC or Cablevision Systems was widely reported earlier this year.

Anticipating that a TWC deal could pave the way for other acquisitions in the industry, investors drove Cablevision shares 5.9% higher Friday to $15.80.

As more video streaming options emerge, cable subscribers have been increasingly canceling their TV accounts while demand for broadband Internet service remains robust. Meanwhile, cable and broadcast networks argue that their programming costs are rising and have sought higher licensing fees from pay-TV providers. In removing competitors, cable and satellite companies would be in a better position to negotiate favorable financial terms from content suppliers and equipment providers. They contend that savings would be passed onto consumers.

If any deal were to materialize, it'd be one of the largest acquisitions ever in the cable industry. TWC has a market value of $37 billion and an enterprise value - the figure used in estimating acquisition cost - of about $58 billion.

A deal of that size would have been unthinkable a few years ago, as federal rules once prohibited cable companies from owning more than 30% of the domestic market. The rule was eliminated in 2009, but market dominance by a single pay-TV provider continues to be a relevant issue.

Comcast owns a little over 20% of the market. And a combined Comcast-TWC would account for 33% of the pay-TV subscribers in the U.S., notes Craig Moffett, an industry analyst at Moffett Nathanson Research. "A company of that size would arguably have de facto control of what content could and couldn't exist in the U.S.," he wrote in a report Friday. "A programmer that failed to get a distribution deal with Comcast arguably wouldn't be economically viable."

When Comcast bought shares of NBCUniversal in 2010, federal regulators expressed concern that the cable company could limit non-NBC programming. Earlier this year, Comcast was ordered to move Bloomberg's TV network closer to other financial channels in its lineup, following Bloomberg's complaint that Comcast, as owner of CNBC, has an incentive to make it harder to find.

Despite no limit on cable companies' market penetration, antitrust regulators "likely wouldn't like what they see" in the size and scope of any deal involving TWC and a competitor, predicts John Bergmayer, an attorney at technology consumer advocacy organization Public Knowledge.

A dominant Internet service provider in a market could favor one video streaming company - one it may even have a financial stake in - over competitors. A cable company may decide that its on-demand video bought by a customer wouldn't count against the broadband Internet data cap while content from others do. "They control the pipe," Bergmayer says. "In order to maximize their profit, it's in their interest to get involved in the corollary businesses (like on-demand video)."